techUK members have outlined the overarching strategy for the Financial Services and Payments Programme for 2018. At our Financial Services Council meeting on 11 October, it was agreed to continue with the three current working groups - Insurance and Pensions, Open Banking & Payments and Distributed Ledger Technology and to combine these under a linking strategy focus.
The message of this strategy is: technology will lead productivity growth in the financial service sector.
A recent report from IPPR Commission, Financing Investment, notes that 'Despite huge advances in information technologies and analytical capacity, the unit cost of intermediation to the non-financial economy was higher in 2007 than it was in the 1950s'. This builds on earlier analysis by Thomas Philippon, Professor of Finance at the Stern School of Business, New York University. He put it even more bluntly: “unit cost of intermediation” – the sum total of wages and profits taken by the financial services industry – remains, over time, close to two per cent. During the past 130 years, there has been no productivity increase in finance."
The conclusion we draw from this is that so far, new, innovative technologies have not been sufficiently embedded into the nuts and bolts of the workings of financial services. Technology has the capacity to bring a sea-change to the efficiency, speed, capacity and service-level of financial services across the board. To achieve this, the UK needs a joined-up strategy to bring technology into the heart of how financial services operate. The future of this industry is connectivity through tech, with data at its heart - we must recognise this and strive to achieve it. This will need leadership from government and regulators; buy-in from the industry and stakeholders. This is a message techUK has given before, in our 2014 paper 'Towards a New Financial Services'. We will be taking up this banner again with the additional message that productivity depends on technology.
All the specific areas of technology - regtech, DLT, insurtech, open APIs, together with AI, cyber-security, IoT, smart contracts - have a part to play in this basic transformation. But we must be careful not to lose the long-term aim amongst the detail of each distinct technology.
techuk will shortly be publishing a paper, 'The Future of Open Banking - the Long View,' which introduces some of these ideas. Keep an eye on our website for news of publication dates. In 2018, we will build on these ideas further.